CSSB 61(RES): "An Act authorizing the commissioner of natural resources to modify a royalty or net profit share on a lease."
00 CS FOR SENATE BILL NO. 61(RES) 01 "An Act authorizing the commissioner of natural resources to modify a royalty or net 02 profit share on a lease." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 36.30.850(b)(32) is amended to read: 05 (32) a contract [CONTRACTS] between the Department of Natural 06 Resources and a contractor [CONTRACTORS] qualified to evaluate hydrocarbon 07 development, production, transportation, and economics, to assist the commissioner of 08 natural resources in evaluating applications for a royalty or net profit share 09 modification under AS 38.05.180(j) [INCREASES OR DECREASES OR OTHER 10 ROYALTY ADJUSTMENTS,] and evaluating the related financial and technical data 11 [, ENTERED INTO UNDER AS 38.05.180(j)]; 12 * Sec. 2. AS 38.05.180(j) is amended to read: 13 (j) The commissioner 14 (1) may provide for modification of a royalty or net profit share on
01 individual leases, leases unitized as described in (p) of this section, leases subject to an 02 agreement described in (s) or (t) of this section, or interests unitized under AS 31.05 03 (A) to allow for production from an oil or gas field or pool if 04 (i) the oil or gas field or pool has been sufficiently 05 delineated to the satisfaction of the commissioner; 06 (ii) the field or pool has not previously produced oil or 07 gas for commercial sale; and 08 (iii) oil or gas production from the field or pool would 09 not otherwise be economically feasible; 10 (B) to prolong the economic life of an oil or gas field or pool as 11 per barrel or barrel equivalent costs increase or as the price of oil or gas 12 decreases, and the increase or decrease is sufficient to make future production 13 no longer economically feasible; [OR] 14 (C) to reestablish production of shut-in oil or gas that would 15 not otherwise be economically feasible; or 16 (D) to prolong the economic life of an oil or gas field or pool 17 from which, without additional capital expenditures, future production 18 would no longer be economically feasible; 19 (2) may not grant a royalty or net profit share modification unless the 20 lessee or lessees requesting the change make a clear and convincing showing that [A] 21 modification of the royalty or net profit share meets the requirements of this 22 subsection and is in the best interests of the state; 23 (3) shall provide for an increase or decrease or other modification of 24 the state's royalty or net profit share by a fixed royalty, sliding scale royalty, net 25 profit share adjustment, or other mechanism [THAT SHALL BE] based on a change 26 in the price of oil or gas or [AND MAY ALSO BE BASED] on other relevant factors, 27 including [SUCH AS] a change in production rate, projected ultimate recovery, 28 development costs, and operating costs; 29 (4) may not grant a royalty reduction for a field or pool 30 (A) under (1)(A) or (1)(D) of this subsection if the royalty 31 modification for the field or pool would establish a royalty rate of less than
01 five percent in amount or value of the production removed or sold from a lease 02 or leases covering the field or pool; 03 (B) under (1)(B) or (1)(C) of this subsection if the royalty 04 modification for the field or pool would establish a royalty rate of less than 05 three percent in amount or value of the production removed or sold from a 06 lease or leases covering the field or pool; 07 (5) may not grant a net profit share modification for a field or pool 08 under (1) of this subsection that would reduce a share reserved to the state to less 09 than 10 percent of the net profit derived from the lease; 10 (6) [(5)] may not grant a royalty or net profit share reduction under 11 this subsection without including an explicit condition that the royalty or net profit 12 share reduction is not assignable without the prior written approval, which may not be 13 unreasonably withheld, by the commissioner; the commissioner shall, in the 14 preliminary and final findings and determinations, set out the conditions under which 15 the royalty or net profit share reduction may be assigned; 16 (7) [(6)] shall require the lessee or lessees to submit, with the 17 application for the royalty or net profit share reduction, financial and technical data 18 that demonstrate that the requirements of this subsection are met; the commissioner 19 (A) may require disclosure of only the financial and technical 20 data related to development, production, and transportation of oil and gas or 21 gas only from the field or pool that are reasonably available to the applicant; 22 and 23 (B) shall keep the data confidential under AS 38.05.035(a)(8) 24 at the request of the lessee or lessees making application for the royalty or net 25 profit share reduction; the confidential data may be disclosed by the 26 commissioner to legislators and to the legislative auditor and as directed by the 27 chair or vice-chair of the Legislative Budget and Audit Committee to the 28 director of the division of legislative finance, the permanent employees of their 29 respective divisions who are responsible for evaluating a royalty or net profit 30 share reduction, and to agents or contractors of the legislative auditor or the 31 legislative finance director who are engaged under contract to evaluate the
01 royalty or net profit share reduction, if they sign an appropriate 02 confidentiality agreement; 03 (8) [(7)] may 04 (A) require the lessee or lessees making application for the 05 royalty or net profit share reduction under (1)(A) or (1)(D) of this subsection 06 to pay for the services of an independent contractor, selected by the lessee or 07 lessees from a list of qualified consultants compiled by the commissioner, to 08 evaluate hydrocarbon development, production, transportation, and economics 09 and to assist the commissioner in evaluating the application and financial and 10 technical data; if, under this subparagraph, the commissioner requires payment 11 for the services of an independent contractor, the total cost of the services to be 12 paid for by the lessee or lessees may not exceed $150,000 for each application, 13 and the commissioner shall determine the relevant scope of the work to be 14 performed by the contractor; selection of an independent contractor under this 15 subparagraph is not subject to AS 36.30; 16 (B) with the mutual consent of the lessee or lessees making 17 application for the royalty or net profit share reduction under (1)(B) or (1)(C) 18 of this subsection, request payment for the services of an independent 19 contractor, selected from a list of qualified consultants to evaluate hydrocarbon 20 development, production, transportation, and economics by the commissioner 21 to assist the commissioner in evaluating the application and financial and 22 technical data; if, under this subparagraph, the commissioner requires payment 23 for the services of an independent contractor, the total cost of the services that 24 may be paid for by the lessee or lessees may not exceed $150,000 for each 25 application, and the commissioner shall determine the relevant scope of the 26 work to be performed by the contractor; selection of an independent contractor 27 under this subparagraph is not subject to AS 36.30; 28 (9) [(8)] shall make and publish a preliminary findings and 29 determination on the royalty or net profit share reduction application, give 30 reasonable public notice of the preliminary findings and determination, and invite 31 public comment on the preliminary findings and determination during a 30-day period
01 for receipt of public comment; 02 (10) [(9)] shall offer to appear before the Legislative Budget and Audit 03 Committee, on a day that is not earlier than 10 days and not later than 20 days after 04 giving public notice under (9) [(8)] of this subsection, to provide the committee a 05 review of the commissioner's preliminary findings and determination on the royalty or 06 net profit share reduction application and administrative process; if the Legislative 07 Budget and Audit Committee accepts the commissioner's offer, the committee shall 08 give notice of the committee's meeting to all members of the legislature; 09 (11) [(10)] shall make copies of the preliminary findings and 10 determination available to 11 (A) the presiding officer of each house of the legislature; 12 (B) the chairs of the legislature's standing committees on 13 resources; and 14 (C) the chairs of the legislature's special committees on oil and 15 gas, if any; 16 (12) [(11)] shall, within 30 days after the close of the public comment 17 period under (9) [(8)] of this subsection, 18 (A) prepare a summary of the public response to the 19 commissioner's preliminary findings and determination; 20 (B) make a final findings and determination; the 21 commissioner's final findings and determination prepared under this 22 subparagraph regarding a royalty or net profit share reduction is final and not 23 appealable to the court; 24 (C) transmit a copy of the final findings and determination to 25 the lessee; 26 (D) with the applicant's consent, amend the applicant's lease or 27 unitization agreement consistent with the commissioner's final decision; and 28 (E) make copies of the final findings and determination 29 available to each person who submitted comment under (9) [(8)] of this 30 subsection and who has filed a request for the copies; 31 (13) [(12)] is not limited by the provisions of AS 38.05.134(3) or (f) of
01 this section in the commissioner's determination under this subsection. 02 * Sec. 3. AS 38.05.180(p) is amended to read: 03 (p) To conserve the natural resources of all or a part of an oil or gas pool, 04 field, or like area, the lessees and their representatives may unite with each other, or 05 jointly or separately with others, in collectively adopting or operating under a 06 cooperative or a unit plan of development or operation of the pool, field, or like area, 07 or a part of it, when determined and certified by the commissioner to be necessary or 08 advisable in the public interest. The commissioner may, with the consent of the 09 holders of leases involved, establish, change, or revoke drilling, producing, and 10 royalty requirements of the leases and adopt regulations with reference to the leases, 11 with like consent on the part of the lessees, in connection with the institution and 12 operation of a cooperative or unit plan as the commissioner determines necessary or 13 proper to secure the proper protection of the public interest. The commissioner may 14 not reduce the royalty or net profit share on a lease [LEASES] in connection with a 15 cooperative or unit plan except as provided in (j) of this section. The commissioner 16 may require a lease issued under this section to contain a provision requiring the lessee 17 to operate under a reasonable cooperative or unit plan, and may prescribe a plan under 18 which the lessee must operate. The plan must adequately protect all parties in interest, 19 including the state. 20 * Sec. 4. AS 38.05.180(s) is amended to read: 21 (s) When separate tracts cannot be individually developed and operated in 22 conformity with an established well-spacing or development program, a lease, or a 23 portion of a lease, may be pooled with other land, whether or not owned by the state, 24 under a communitization or drilling agreement providing for an apportionment of 25 production or royalties among the separate tracts of land comprising the drilling or 26 spacing unit when determined by the commissioner to be in the public interest. 27 Operations or production under the agreement are considered as operations or 28 production as to each lease committed to the agreement. The commissioner may not 29 reduce the royalty or net profit share on a lease [LEASES] in connection with a 30 communitization or drilling agreement except as provided in (j) of this section. 31 * Sec. 5. AS 38.05.180(t) is amended to read:
01 (t) The commissioner may prescribe conditions and approve, on conditions, a 02 drilling [,] or development contract [CONTRACTS] made by one or more lessees of 03 oil or gas leases, with one or more persons, when, in the discretion of the 04 commissioner, the conservation of natural resources or the public convenience or 05 necessity requires it or the interests of the state are best served. A lease [ALL 06 LEASES] operated under an approved drilling or development contract, 07 [CONTRACTS] and interests under the contract [THEM], are excepted in 08 determining holding or control under AS 38.05.140. The commissioner may not 09 reduce the royalty or net profit share on a lease [OR LEASES] that is [ARE] subject 10 to a drilling or development contract except as provided in (j) of this section.